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“The old worries about the eurozone show investor sentiment remains on a knife edge”, said Richard Hunter, head of UK equities at Hargreaves Lansdown.

The euro area’s blue chip stock index, the Euro STOXX 50 , fell 0.3% at the start of trading, but recovered some of the losses to stand down 0.2% at 2,504.57 points.

Eurozone finance ministers, the International Monetary Fund and the European Central Bank were unable to agree in 12 hours of overnight talks in Brussels on how to make the country’s debt sustainable. They want a solution before paying the next urgently needed loan tranche to keep Greece afloat.

Several European officials played down the delay, saying the disagreements were technical and a deal would be reached when they meet again on Nov. 26.

But German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin that the lenders were split over several key issues including how to define debt sustainability and fill a hole in Greek finances.

“He sees the extension of the debt sustainability goal as one of the main bones of contention. The other is how to cover the Greek financing gap of 14 billion euros through 2014,” said one lawmaker who attended Wednesday’s meeting of Chancellor Angela Merkel’s centre-right Christian Democrats in parliament.

Merkel herself told the lawmakers the gap could be plugged by lowering interest rates on loans to Greece and increasing guarantees provided to the eurozone’s temporary EFSF bailout fund, in which Germany would take its share, a participant said.

Greece needs the next 31 billion euro aid tranche to keep servicing its debt and avoid bankruptcy. Its next major repayment is in mid-December.

Athens says it has carried out the tough reforms required in the bailout programme but needs more time to reach fiscal targets agreed with its lenders because its economy has continued to shrink.

European governments want to give Greece an extra two years, until 2022, to cut its debt to a sustainable level but the IMF does not agree. The Europeans, led by Germany, are refusing to write off any loans. Both options would make it easier for Greece to meet the targets in the bailout programme.

French Finance Minister Pierre Moscovici said agreement was close, echoing overnight comments from Eurogroup chairman Jean-Claude Juncker, who said talks were stuck on technicalities.

“We are a whisker away from a deal. I am very confident we will get there on Monday,” Moscovici told Europe 1 radio.

Greece is angry about the repeated delays in releasing the aid and says it has done what is necessary.

“Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do,” Prime Minister Antonis Samaras said in a statement.

“Any technical difficulties in finding a technical solution do not justify any negligence or delays.”

Samaras will meet Juncker in Brussels on Thursday and has cancelled a trip to Qatar next week to monitor the talks, a government spokesman said.

Investors were disappointed with the news. Greek banking stocks fell nearly 6% in morning trade. Most of Greece’s next aid instalment has been earmarked to shore up the country’s tottering banks.

NO WRITE DOWN

A document prepared for the meeting and seen by Reuters showed that Greece’s debt cannot be cut from 170% of GDP to 120%, the level deemed sustainable by the IMF, unless either eurozone member states write off a portion of their loans to Greece or the IMF extends its deadline by two years.

Germany and other EU states say writing down their loans would be illegal. The European Central Bank, a major holder of Greek bonds, has refused to take a “haircut” on its holdings.

Berlin contends a debt haircut would not tackle the roots of Greece’s debt problems and would be unfair to other eurozone countries that have taken tough steps to improve their finances.

“It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures…and it would have consequences under budget law,” Norbert Barthle, budget spokesman for German Chancellor Angela Merkel’s Christian Democrats said.

Without corrective measures, the Eurogroup document said, Greek debt would be 144% in 2020 and 133% in 2022.

Juncker said after a meeting a week ago that he wanted to extend the target date to reduce Greek debt by two years to 2022, but Lagarde insists the 2020 goal should stand. She is believed to favour eurozone member states taking a writedown.

The European commissioner for economic affairs, Olli Rehn, said on Tuesday that the eurozone should be ready to do more for Greece in the coming years, an apparent nod to the idea of government-sector debt writedowns.

“It’s essential now that we take a decision on a set of credible measures on debt sustainability and, at the same time, we need to be ready to take further decisions in the light of future developments,” Rehn said.

DEBT BUYBACK

Among the main measures under consideration to bring the debt burden down as rapidly as possible is a buy-back under which Greece would offer to purchase bonds from private investors at a sharp discount to their face value.

Schaeuble told the lawmakers on Wednesday that a debt buyback could be part of the solution.

Several options are under consideration including using about 10 billion euros of money lent by the EFSF to buy back bonds at between 30 and 35 cents on the euro.

There are also proposals to reduce the interest rate on loans already extended by eurozone countries to Greece, to allow a long moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.